Maroubra Road Developments Pty Ltd v Afyouni

1. [1]

   HER HONOUR: This matter came before me in the applications list on 5 November 2019, in circumstances where the proceedings had been before Kunc J on 4 October 2019 and his Honour had struck out the first statement of cross-claim filed by the defendant (Hazem Afyouni) and a company associated with him, Elite Realty Development Pty Ltd, (together, the cross-claimants) on 25 June 2019.

2. [2]

   On that occasion, his Honour made directions for the provision by the cross-claimants to the cross-defendants (Maroubra Road Development Pty Ltd and Mr Omar Sadek) of a draft amended statement of cross-claim on or before 25 October 2019, and for the cross-defendants to notify the cross-claimants on or before 29 October 2019 as to whether or not the cross-defendants consented to the filing of the amended statement of cross-claim. His Honour directed that if such consent was not forthcoming by that date, the cross-claimants have leave to file a motion seeking leave to file that amended statement of cross-claim, such motion to be filed and served on or before 1 November 2019 and to be returnable for directions in the applications list on 5 November 2019.

3. [3]

   When the matter came before me on 5 November 2019 I was informed by Counsel appearing for the cross-claimants, Mr McDonald, that there had been delay in serving the draft amended statement of cross-claim but that it had been served on 4 November 2019. On that occasion, the issue before me was presented as to there being a dispute as to the adequacy of the proposed amended statement of cross-claim that could be dealt with in half an hour. Senior Counsel for the cross-defendants (Mr Cheshire SC) was in a position to indicate that there was no consent to the filing of the proposed amended statement of cross-claim and the matter was listed before me today to deal with that issue. I directed that submissions be exchanged by 4pm yesterday on the pleading issues.

4. [4]

   When the matter came before me this afternoon, the position of the cross-claimants was that they were seeking an adjournment of the matter and that their position was that, if an adjournment was granted, there would be consent to the payment out to the plaintiff (Maroubra Road Developments Pty Ltd) of funds presently held in court on condition that those funds be directed to the Australian Taxation Office.

5. [5]

   The cross-claimants did not concede that the proposed amended pleading of the cross-claim was deficient but accepted it could be set out better. I was informed that it was anticipated that there would be further information obtained in the near future that would assist in adding the facts to identify the claim made in relation to the alleged threat (see further below).

6. [6]

   The application for the adjournment of the hearing this afternoon was opposed and, accordingly, I have proceeded to deal with the issue as to the proposed amended cross-claim.

Background

1. [7]

   By way of background, it does not appear to be disputed that the present dispute arises following a joint venture of some kind between two individuals, Omar Sadek and Hazem Afyouni, in relation to a property development in Maroubra. I will refer to the two individuals by their first names. A company (the plaintiff in these proceedings, Maroubra Road Development Pty Ltd) was incorporated. Each of Omar and Hazem held shares through a corporate entity in the plaintiff company and each was a director of the plaintiff company (to which I will refer as Maroubra).

2. [8]

   Maroubra acquired the Maroubra property and the development work was carried out through an entity called Elite Realty Development Pty Ltd (Elite) (the second cross-claimant).

3. [9]

   These proceedings were commenced by summons filed on 16 May 2019 by Maroubra against Hazem. The relief claimed in the summons was for the payment of $269,750 plus damages, interest and an asset preservation order, including on an interlocutory basis.

4. [10]

   Subsequently, on 29 May 2019, a statement of claim was filed. The allegations in the statement of claim include allegations that, on or about 10 April 2019, Hazem, by electronic funds transfer, caused the sum of $269,750 to be removed from Maroubra’s ANZ Bank account and transferred to his bank account and then subsequently removed from that bank account and then transferred to another of his bank accounts.

5. [11]

   It is alleged at [3] of the statement of claim that the transfers were performed by Hazem without the authority or consent of Maroubra and represented a misappropriation of the moneys by Hazem to his own use. The allegation is made that, by reason thereof, Maroubra was deprived of those moneys and has suffered loss and damage in the said sum. The allegation at [5] of the statement of claim is that, upon receipt of the moneys into his bank accounts, Hazem (the pleading names the plaintiff but this is clearly a typographical error having regard to the balance of the pleading) held the moneys on trust for Maroubra and those moneys represented monies had and received by Hazem, by which he has been unjustly enriched at the expense of Maroubra and which it would be unjust and inequitable for Hazem to retain. Also pleaded is a demand for return of the moneys and failure to meet that demand (see [6] of the statement of claim).

6. [12]

   On 20 May 2019, the matter came before Pembroke J. On that occasion, by consent and on a without admission basis, and on Maroubra giving the usual undertaking as to damages, certain orders were made, including an order that Hazem pay the amount of $269,750 into court on or before 20 May 2019. (Those funds were duly paid into court.)

7. [13]

   Hazem filed a defence on 25 June 2019 in which, among other things, he has admitted that he transferred funds in the sum claimed ([2]); admitted that he made the transfer without the consent of Maroubra but denied that this represented a misappropriation of moneys for his own use ([3]) and relied on the cross-claim in the proceedings.

8. [14]

   The first statement of cross-claim was filed on 25 June 2019. It named additional parties to the proceedings and identified Hazem as the first cross-claimant and Elite as the second cross-claimant. The named cross-defendants are Maroubra and Omar.

9. [15]

   The cross-claim, as initially filed, claimed, among other things, an order for an accounting between the parties, including an accounting of the proper BAS returns and invoices as between the companies; an order for payment of any debts arising from the accounting between the parties; declarations and orders that what was defined as the “second agreement” be void or be set aside; a declaration that the cross-claimants have an interest in another property (the “Matraville property”, as defined in the proceedings), or, alternatively, an interest in a company, Big Homes Sydney Pty Ltd (Big Homes Sydney); and orders for the realisation of the interest by the cross-claimants in the Matraville property or, alternatively, in Big Homes Sydney.

10. [16]

    Kunc J struck out that cross-claim on 4 October 2019, having indicated in the transcript his Honour’s concerns as to the pleading as it then stood (but without publishing reasons for so doing). His Honour made directions that permitted the cross-claimants, in effect, another opportunity properly to plead their cross-claim.

Proposed amended cross-claim

1. [17]

   The proposed amended cross-claim that has subsequently been served claims a variety of relief. The first cross-claimant is Hazem, the second cross-claimant is Elite. There are four cross-defendants: Maroubra, Omar, Big Homes Sydney and a (new) fourth cross-defendant, Bilal Dennaoui (Bilal). The proposed amended cross-claim makes various allegations in relation to: the alleged joint venture in respect of the Maroubra project between Hazem and Omar; the purchase of the Maroubra property pursuant to a contract of sale on or around 13 July 2016; and that the contributions in relation to the joint venture and a construction loan in relation to the development of the property and use of joint venture funds, particulars of which are there said to be provided upon discovery. The allegations sought to be made in that document include an allegation of breach of certain terms of the joint venture agreement.

2. [18]

   The pleading then deals with an agreement allegedly entered into between Hazem and Omar to terminate the joint venture on terms under a termination agreement (as defined) and then there are a series of allegations as to disputes and threats made, including: an alleged gun attack on Hazem; an alleged telephone threat to harm Hazem in a telephone call made to someone else (Van Pham), and further allegations in relation to the alleged threat and intimidation of Hazem.

3. [19]

   It is then alleged that the termination agreement was made on 22 May 2018 on the basis of various alleged representations.

4. [20]

   The proposed amended pleading deals with other conduct alleged of Omar; an application for an apprehended personal violence order being filed by Hazem against Omar in the Local Court; and a claim for personal injury and damages to Hazem; then (from [178]) breach of the joint venture and termination agreement; and there are also allegations about a tax dispute and about defects in relation to the Maroubra property.

5. [21]

   As to the orders sought, Hazem seeks from Omar and Bilal aggravated damages, exemplary damages and/or, in the alternative, damages; Elite claims to be entitled to a variety of relief as set out in [205] of the proposed amended pleading.

6. [22]

   The claims that the cross-claimants seek to make are identified in the submissions filed for the cross-claimants on this application (at [20] of the submissions) as follows:

7. [23]

   The cross-claimants submit that the claims have been properly and fully pleaded in the proposed draft amended first statement of cross-claim. The police charge sheet and the police record of the telephone conversation (in which the alleged telephone threat was made) were tendered as evidence of the facts that will be relied upon at the hearing if the proposed amended cross-claim is permitted to be filed.

8. [24]

   The cross-claimants accept that material facts need to be pleaded which would otherwise take the deponent by surprise, having regard to r 14.14 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR), and accept that allegations of illegality should be pleaded clearly and specifically; and with detailed particulars.

9. [25]

   Referring to r 14.14(3) of the UCPR, it is submitted that the cross-claimants have provided particulars in support of the proceedings which enable their opponents to identify the case which must be met, and it is submitted that the cross-claimants have provided “lengthy and fulsome” pleadings, and particulars of the conduct and facts which are said to have occurred such that the cross-defendants ought to know the case which they are to meet.

10. [26]

    It was, however, conceded that if it was not accepted that the cross-claim was adequately pleaded at this stage, then it would be appropriate to consider the entry of judgment, dismissing the cross-claim and for payment out of moneys held in court. (That in effect was the nub of the proposal put forward by the cross-claimants in support of the application for an adjournment on this occasion.)

11. [27]

    For the cross-defendants, among other things, reference was made to the responses that had been received from Hazem in relation to the particulars sought of the matters in the initial statement of cross-claim (there having been allegations of duress in [62] and an allegation in [85] that the “attacks” were conducted upon the instructions of Omar).

12. [28]

    It is noted that in the proposed amended cross-claim, Hazem pleads the termination agreement by which he agreed to resign as director of Maroubra and exit the venture in the sum of $700,000 (see [138]); an entitlement to rescind that agreement by virtue of duress (see [148]-[150]); and the duress resulted from the “first threats, gun threat, telephone threat” and facts referred to in [137].

13. [29]

    It is also noted that at [152] there is an alternative claim to the effect that Hazem is entitled to have the termination agreement set aside as being unconscionable and, at [153], an entitlement in the premises of the termination agreement being set aside or void on the part of Hazem to have the terms of the Maroubra joint venture performed.

14. [30]

    Reference is made to the allegation at [157] of the proposed amended pleading in which it is alleged that “the first threats, gun threat and telephone threats, each of them separately or all of them collectively, were intentional acts done with the intent of causing harm and damage to Hazem”.

15. [31]

    The cross-defendants have referred to the well-known authorities as to the function of pleadings including National Australia Bank Limited v Skoczek [2016] NSWSC 1765 and McGuirk v The University of New South Wales [2009] NSWSC 1424. Reference in that regard may also be made to the function of the pleadings as explained by Mason CJ and Gaudron J the High Court in Banque Commerciale SA (En Liqn) v Akhil Holdings Limited (1990) 169 CLR 279 at 286-287; (1990) HCA 11:

16. [32]

    In Pharm-a-Care Laboratories Pty Ltd v Commonwealth of Australia (No 3) [2010] FCA 361; (2010) 267 ALR 494, Flick J in the Federal Court of Australia noted the pleading requirements where a particularly serious matter is alleged, referring to [67] in Banque Commerciale S.A., en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 (as extracted above) and going to say:

17. [33]

    His Honour quoted, at [69], from the decision of Millett L at [185] to [186] of the decision in Three Rivers District Council v Bank of England (No 3) [2003] 2 AC 1; [2001] 2 All ER 513; [2001] UKHL 16.

18. [34]

    There can be no doubt that allegations of fraud or illegality of the kind here sought to be made in the proposed amended statement of cross-claim should be pleaded “clearly, specifically, and with detailed particulars” (as the cross-claimants here accept) (see Lay v Pech [2018] NSWSC 460 at [59]).

19. [35]

    The cross-defendants have identified a series of deficiencies in the current proposed amended statement of cross-claim (see [20]-[21] of the submissions filed on the present application), as follows:

20. [36]

    See also the complaint made (at [23] of the submissions) as to the inability of Hazem to identify material facts demonstrating that Omar was responsible for the acts relied upon.

21. [37]

    It is said for the cross-defendants that in the course of submissions on the present application the position of the cross-claimants was, in effect, to say that the cross-claimants were seeking information and anticipating that there would be factual matters discovered that would enable a pleading in relation to the claim to be made. It is submitted that this is not an appropriate way in which to plead allegations of this kind, namely, to plead allegations in broad terms and then to seek to ascertain what evidence there may be to support those allegations.

22. [38]

    It is accepted by the cross-defendants that it may be open to the cross-claimants subsequently to bring proceedings if, on their investigation, whether through exercising powers that might be available to them or rights that might be available under the corporations legislation or by some form of pre-action discovery, to commence proceedings afresh; but it is submitted that if the cross-claimants cannot plead properly on the basis of evidence now available then the cross-claim should be dismissed (reference there being made to Farah Custodians Pty Ltd v Commissioner of Taxation [2018] FCA 1185 at [178]).

23. [39]

    It is submitted that if leave is not given for the filing of the proposed amended cross-claim then the defence to the primary claim would then fall away and judgment should be entered in Maroubra’s favour with an order for payment out of the moneys in court.

24. [40]

    It is further noted by the cross-defendants that even if the cross-claim were to proceed, and were to succeed, so that the agreement by which Hazem gave up his interests in Maroubra was vitiated by duress, the remedy that he seeks is rescission and, in order to obtain that remedy, Hazem would need to repay the $700,000 that he has received under that agreement.

25. [41]

    It is further said that the effect (if the agreement were set aside) would be that Hazem would be re-instated as a shareholder of Maroubra with the ordinary entitlements associated with that of member, but would have no proprietary interests in the moneys that were paid to Maroubra and that are currently in court and, therefore, it is submitted that the matters raised in the cross-claim do not raise a defence to the claim and that judgment should be ordered on the claim with an order of payment out of moneys in the court.

26. [42]

    The cross-claimants did not identify any prejudice that would be suffered by that course other than the potential additional costs that would be incurred if proceedings are dismissed at this stage and then fresh proceedings are to be commenced at a later date.

Determination

1. [43]

   Having regard, however, to the overriding purpose under s 56 of the Civil Procedure Act 2005 (NSW), namely, the just, quick and cheap resolution of the real issues in dispute, and the obligations of practitioners in this Court, it does not seem to me that it is appropriate to provide a further extension of time in order for the cross-claimants to carry out enquiries or investigations in order to see if they can ascertain factual material to support the making of a properly pleaded allegation of the kind that is here sought to be made and, in those circumstances, I am of the view that the relief sought by the cross-defendants should be granted.

2. [44]

   I do not consider that the proposed amended pleading meets the requirement for the pleading of such serious allegations as those sought to be made.

3. [45]

   In the initial cross-claim, the duress pleaded at [62] is alleged as arising from the Attacks, those being identified in [55] as a “series of threats, intimidation and an assault” and at [84] as being “the events described in” [67]-[82]. The matters pleaded at [67]-[82] are allegations that Hazem was attacked by third parties. Complaint is rightly made that the allegation at [85] is a rolled up allegation that the Attacks were “conducted upon the instructions of Omar”. The request for particulars was met, first, with a wholly unsatisfactory response that this was a matter for evidence and then by a reference to [21]-[124] of an affidavit sworn by Hazem in AVO proceedings brought by him against Omar in the Local Court. As I have said elsewhere (see Collier v Country Women’s Association of New South Wales [2017] NSWCA 22), it is not an appropriate way of pleading to refer to an affidavit and leave it to the defendant to trawl through the affidavit to attempt to discern the case pleaded against the defendant.

4. [46]

   In this regard, see Bryson J in Northam v Favelle Favco Holdings Pty Ltd (Supreme Court (NSW), 7 March 1995, unrep) as to what a pleading is to contain and as to the requirement for particularity of pleading extending to all causes of action; and in particular his Honour’s explanation as to the unfairness to a defendant if the defendant is required “to flesh out general expressions or indirect allusions by piecing together information in other documents such as affidavits or experts’ reports”.

5. [47]

   What is now proposed to be pleaded is (as adverted to above): the alleged duress (by reference to the First Threats, the Gun Threat, the Telephone Threat and the facts referred to at [137]); there is an allegation that even if Omar did not make or cause the threats to be made the Termination Agreement should be set aside on the basis of unconscionability ([152]); and it is asserted at [157] that:

6. [48]

   I consider that the complaint made by the cross-defendants (that there are rolled up allegations and unsupported submissions at a high level of generality and appearing across several sources) is well founded.

7. [49]

   As to the Gun Threat alleged, it is noted that the particulars and documents provided in support of that allegation involve the alleged gunman (Bilal) demanding money said to by owed by Hazem and Omar to him (not consistent with Omar causing Bilal to make a threat on behalf of Omar).

8. [50]

   The allegation of knowledge is put on the basis that (see [83]) Bilal was a person of a type who was ready, willing and able to make threats of violence and intimidation (relying on a police transcript of a conversation between Bilal and Hazem to show that a third party to the conversation, Omar, knew something (see T 13)), on the basis that in the conversation Bilal is said to inform Hazem that he spoke to Omar informing him of his nature and what he is prepared to do (make threats of violence and intimidation). It seems to me that the pleading does not adequately identify the basis of the knowledge said to have been the knowledge Omar had; nor does it adequately plead the material facts on which the cross-claimants rely for the allegation that Omar requested Bilal to threaten or make a demand on Hazem. The cross-claimants say that it is a circumstantial case and that in a pleading of conspiracy it could not be expected that the victim will know of the conspiracy.

9. [51]

   Pleadings must state all of the material facts that are necessary to constitute a complete cause of action and the relief sought (see Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591 at [44154] (Goldberg J); Wride v Schulze [2004] FCAFC 216 at [25]). Particulars, even those that are clear and unambiguous cannot supply the deficiency in pleadings (Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215 at 223 (French J, then sitting in the Federal Court); PPK Willoughby Pty Ltd v Roads and Maritime Services [2014] NSWSC 407 at [46] (Campbell J)).

10. [52]

    A pleading which alleges serious matters of this kind must be pleaded specifically. I am not prepared to permit the filing in court of the proposed amended statement of cross-claim because of the deficiencies identified by the cross-defendants. Insofar as the cross-claimants say that there are investigations on foot that it is expected will identify material facts, then this simply points to it being premature to make such a claim at this stage.

11. [53]

    Moreover, it appears to be conceded that the money paid into court came out of the bank account of Maroubra and is money of Maroubra that is held for the benefit of the joint venture (see T 10.46ff). The fact that there may be a claim for damages (or under an indemnity against Elite for defective works) was not said to entitle the cross-claimants in effect to execute a self-help remedy (see T 10) (as in effect seems to be the position here advocated – namely that it is conceded that moneys came out of the Maroubra bank account that belong to Maroubra or are for the benefit of the joint venture; and the cross-claimant seeks to retain those moneys in relation to a separate claim on the joint venture funds for an indemnity or damages in respect of defective works). The cross-defendants say that a claim for breach of the joint venture or the termination agreement does not sound in a defence to the claim for restitution of the funds taken from the Maroubra bank account and they point out that there is presently no claim by Elite against Maroubra for indemnification in any event (and that any such claim is put as a contingent and unascertained obligation – see [198] of the proposed amended pleading) (which appears to be conceded – see T 16-17).

12. [54]

    In those circumstances, where the cross-claimants do not concede that there are insufficient facts in order to make a claim but have not been able at this stage properly to plead those claims, and where it is accepted that the moneys paid into court are moneys that belong to Maroubra and that any claim that the defendants/cross-claimants may have for damages for some breach of one or more of the agreements to which reference has been made or to set aside the termination agreement would not affect that position, I am of the view that the appropriate course is to make the following orders:

    1. (1)

       Dismiss the cross-claim by the defendants/cross-claimants.

    2. (2)

       Order judgment in favour of the plaintiff on the plaintiff’s claim for payment of the sum of $269,750.

    3. (3)

       Order the payment out of court of the sum of $269,750 and any interest thereon to the plaintiff’s solicitor forthwith.

    4. (4)

       Order the defendants to pay the costs of the proceedings.

    5. (5)

       Order that these orders be may be entered forthwith.

    6. (6)

       Vacate the listing of the matter on 19 November 2019.

13. [55]

    In relation to the claim by the cross-defendants for costs on an indemnity basis, I am persuaded that such a costs order should be made. I consider that it is a serious matter to allege conduct of the kind here that has been alleged. Allegations of such a kind should not lightly be made and, when made, should be properly pleaded and particularised (see Picone v Velos [2007] FCA 1183 at [95]; Sgro v Australian Associated Motor Insurers Ltd [2015] NSWCA 262; Macquarie International Health Clinic Pty Ltd v Sydney Local Health District (No 2) [2019] NSWSC 1492 (Macquarie v SLHD (No 2))). I considered it necessary for a special costs order to be made in Macquarie v SLHD (No 2), where allegations of a serious kind were made without any real foundation and based on mere suspicion of an improper motivation on the part of a statutory authority (and later abandoned).

14. [56]

    Similarly, here I consider that it is important for the purposes of the conduct of proceedings in this Court not to condone a situation where pleadings have been brought of that kind without proper and precise particularisation (even acknowledging that the cross-claimants consider that there is material that supports the inference of improper conduct on the part of the cross-defendants).

15. [57]

    Accordingly, I amend the above orders as follows:

    1. (1)

       Order the defendant/cross-claimants to pay the cross-defendants’ costs up to 25 June 2019 on the ordinary basis and from 25 June 2019 on the indemnity basis.